Equipment Dealers Coverage Form and the Other Insurance Clause

The other insurance clause on the commercial inland marine conditions form states the following: if there is other insurance covering the same loss or damage, the insurer will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether the named insured can collect on it or not. This clause has caused a problem for our insured who has coverage under an equipment dealers coverage form.

Our insured was returning to its owner a piece of construction equipment that had been left with the insured for servicing. The lowboy trailer on which the equipment was being hauled tipped over and the equipment fell to the ground, sustaining about $30,000 worth of damage. When the insured submitted a claim, the insurer denied coverage, contending that the other insurance clause makes our insured's policy excess over the coverage that the owner of the equipment has from his own inland marine policy. And the insurer even said the other insurance clause would prevent coverage in the event of a subrogation claim against our insured by the equipment owner's insurer. What is your opinion of this? It seems to us that if the insurer is right, it makes a huge part of the equipment dealers coverage non-existent.

Alabama Subscriber

The insurer is misinterpreting the other insurance clause. Other insurance exists when two or more insurance coverage forms cover the same interests in the same property against the same loss or damage. In this case, the property may have been the same under both your insured's policy and the owner's policy, but the interests involved are definitely different.

Under the terms of the equipment dealers coverage form, the valuation of property in the care, custody, or control of the named insured is the amount for which he is liable; the form applies to the amount of damage caused by the insured. The owner of the equipment has it insured for the actual cash value of the equipment in its entirety. In other words, the interest of the owner of the equipment is as the actual owner; his interest in the equipment is for the value of the equipment as a whole. The interest of your insured is only as a bailee for the equipment; his interest in the equipment is for the amount of damage he has caused to the equipment.

The equipment dealers form, in covering property of others, exists for the benefit of the insured to cover his liability to others for property damage he causes; it does not exist for the benefit of the property owner. If your insured is liable for the property damage in this instance, the equipment dealers form responds as primary coverage. If it were any other way, the coverage the insured is paying for would be, as you suggest, illusory.

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